This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 MASERU 000598 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID EINV ECON PREL LT MCC
SUBJECT: MCC CHIEF EXEC VISITS LESOTHO 
 
MASERU 00000598  001.2 OF 005 
 
 
¶1. SUMMARY: Millennium Challenge Corporation (MCC) Chief 
Executive Officer (CEO) Paul Applegarth and other MCC officials 
visited Lesotho October 25-26 on a familiarization trip.  In an 
extremely busy 36 hours, Mr. Applegarth and his team met with a 
wide variety of government, private sector, NGO, and donor 
representatives, as well as making three site visits, including 
one for a project featured in the Compact proposal.   Ambassador 
Perry hosted private sector and NGO representatives as well as 
the Ministers of Foreign Affairs, Finance, Tourism, Natural 
Resources and Agriculture at the CMR for receptions and luncheon 
discussions with the MCC team.   In addition, Embassy Maseru 
Pol/Econ and Public Diplomacy staff organized donor and public 
affairs events for the MCC/CEO and delegation members at the 
Chancery.   The Government of Lesotho held a final reception in 
honor of the CEO and his team.  Prior to the visit, the 
Ambassador, accompanied by DCM,  briefed key GOL officials 
(including the Prime Minister) on the familiarization rather 
than technical nature of the trip.  The Lesotho program 
accomplished the team's goals and provided a reciprocal benefit 
to government officials and others involved in Compact process, 
who had a much-appreciated opportunity to meet senior MCC 
leadership and learn more about the MCC's approach to evaluating 
proposals.  END SUMMARY. 
 
¶2. On October 25-26, MCC/CEO Paul Applegarth visited Lesotho to 
learn more about potential partners here in an MCC Compact and 
to familiarize himself with the the overall economic and 
political environment.  Accompanying him were: John Hewko, MCC 
Vice President, Country Relations; Maureen Harrington, Senior 
Advisor; and Kristen Herring, Press Assistant.   (Note: Lesotho 
is one of the 16 countries declared eligible to compete for the 
USD 1 billion in MCC funds allocated for FY 2004.  The 
government submitted a draft Compact in late September, 
requesting a total of USD 254 million.  The purpose of the trip 
was not to provide detailed  technical feedback on the 
proposal.)  The team met with a wide variety of persons and 
organizations involved in drafting the Compact or with a strong 
interest in the MCC's final decision.  Activities included: 
 
Meetings with: 
 
Prime Minister Pakalitha Mosisili; 
Minister of Foreign Affairs Kenneth Tsekoa; 
Minister of Natural Resources (Mr.) Monyane Moleleki; 
Working breakfast  -- Home Affairs and Public Safety Tom Thabane; 
Chief Executive of the Lesotho Highlands Development Authority, 
(Mr.) E.L. Potloane; 
(Combined) the Cabinet MCA Sub-Committee, the Principal 
Secretaries' Steering Committee, 
 
SIPDIS 
    and the technical working group; 
Donor community representatives. 
 
Other Events: 
 
Ambassador hosted CMR working lunch with NGO representatives; 
working lunch with Cabinet sub-committee, i.e., ministers of 
foreign affairs, finance and development planning, agriculture 
and food security, natural resources, and tourism, environment, 
and culture; and a reception for private sector representatives; 
Econ/Comm Assistant organized  site visits to Lesotho Flour 
Mills, (U.S. investment) and Global Textiles and Formosa 
Textiles  (AGOA-related investments) and a 
visit to proposed site of the Metolong Dam, featured in 
Lesotho's MCC proposal; and, 
Public Diplomacy Officer hosted Press event for local media. 
 
Ambassador Perry and DCM Albrecht accompanied the team on all 
meetings/events.  In addition, Public Diplomacy (PD)  Officer 
Dornburg, GSO Blosser, and Econ/Commercial Assistant Akhionbare 
participated in most activities as did PD Assistant Nthejane. 
 
-------------------------- 
Meeting with MFA 
-------------------------- 
 
¶3. Mr. Applegarth's visit began with a call on MFA Tsekoa.   The 
CEO stressed, as he did in all subsequent conversations, that 
the purpose of the visit was familiarization with those 
individuals and groups involved in drafting the Compact, i.e., 
the potential partners with the MCC, should a final agreement be 
reached.   The team would not and could not provide detailed 
feedback on the recently-submitted draft Compact.   In response, 
Tsekoa noted the wide-ranging participation in the drafting 
 
SIPDIS 
process both within and outside of the government which had 
resulted in a strong sense of "ownership" of the proposal. 
Priorities (development of water resources, agriculture, 
industrialization, tourism, and institutional capacity building) 
had been selected carefully.   Another strong plus for Lesotho 
was its continuing progress on democratization: free and fair 
national elections in 2002, upcoming local elections (note: 
planned for sometime before March 31, 2005, but no specific date 
has been announced, end note) and the country's participation in 
the AU African Peer Review Mechanism. 
 
 
MASERU 00000598  002.2 OF 005 
 
 
¶4.  Describing the Compact as "thoughtful and comprehensive," 
Mr. Applegarth said he hoped to get a better understanding of 
the proposal's implementation and its links to poverty reduction 
and employment creation.   He added that the MCC is preparing to 
select eligible countries for 2005 and Lesotho is a candidate. 
In response to a question from Tsekoa, he reassured the MFA that 
eligibility in 2004 would not reduce a country's chances for 
¶2005.  Lesotho, in fact, does well under the two changed 
eligibility criteria: reduction in the inflation rate ceiling 
from 20 to 15 per cent and female, as opposed to overall, 
primary school completion rate. 
 
-------------------------------------- 
NGO's Provide Their Views 
-------------------------------------- 
 
¶5. At the Ambassador's lunch with representatives of the NGO 
community, CEO Applegarth solicited views about the consultation 
process regarding the Compact and the proposal's priorities. 
NGO's generally thought the consultations had been open and 
genuine, with civil society's views receiving due consideration. 
  There was some disagreement on priorities.  The proposed ski 
resort, for example, did not match the Millennium Challenge 
Account (MCA) Tourism Task Force's recommendation to develop 
eco-tourism.  A CARE employee and a local consultant questioned 
how much the population would benefit from the three proposed 
dam projects in the Compact.  A representative from Habitat for 
Humanity raised the long-standing problem of land tenure -- the 
current system prevents owners from having clear title.  The 
Lesotho Council of NGO's noted that statistics in Lesotho are 
often unreliable -- to which Applegarth commented that data 
collection may need to be a part of the first state of any 
implementation plan.  He encouraged NGO's to remain engaged in 
the consultations process, wich would continue as part of 
efforts to develop an implementable Compact. 
 
--------------------------------------------- -------------- 
----------------------------- 
Cabinet Sub-Committee, PS Steering Committee and Others 
--------------------------------------------- -------------- 
----------------------------- 
 
¶6.  At the Prime Minister's request, the GOL arranged a combined 
meeting for the team with the Cabinet MCA Sub-Committee 
(ministers of foreign affairs, finance and development, 
agriculture and food security, and tourism, environment, and 
culture), the Principal Secretary Steering Committee (members 
from the same ministries as the Cabinet group), and 
representatives of the technical working group, which included 
NGO and private sector officials.   Minister of Finance Thahane 
noted that groups involved in creating the Vision 2020 national 
plan and the Poverty Reduction Strategy Paper also worked on the 
MCA document.  The Minister made four major points: 
 
1) The proposal's formulation was inclusive and would continue 
to be so. 
2) The private sector should be the engine of development, 
requiring the government to create an attractive business 
environment; government would engage the private sector on how 
to create such an environment and what sectors are best for 
development. 
3) The government is addressing the need to improve 
administrative and financial management.  4) Development in 
Lesotho should be based on the resources available: people and 
water. 
 
¶7. Applegarth described MCA as part of the overall USG approach 
to development, which consists of trade, debt relief, and 
development aid.  MCA is an investment of U.S. taxpayer money in 
poverty reduction and economic growth, based on a partnership 
model.  By 2006, MCA would be the largest U.S. aid program since 
the Marshall Plan, assuming full funding.   Turning to Lesotho's 
proposal, he described the document as "thoughtful," and based 
on the resources available in the country.  The consultative 
process seemed to be appropriately inclusive. 
 
¶8. Discussion then focused various aspects of the proposed 
Compact.   In response to questions about when a proposal might 
be approved, Applegarth declined to be specific, but said he 
would be disappointed if nothing was in place by the middle of 
next year.   To help move things along, he suggested that those 
responsible for the Compact consider: phased-in implementation; 
other funding sources, as MCA would assist other donors; 
implementation by non-government entities; and what types of 
policies require assistance that MCA could provide.  Hewko 
stressed the importance of measurable results, tangible outcomes 
that do not involve merely materials or equipment. 
 
------------------------------------------- 
Minister of Natural Resources 
------------------------------------------- 
 
¶9. Minister Moleleki concentrated on describing the Metolong Dam 
project featured in the Compact.  Lesotho is requesting USD 43 
 
MASERU 00000598  003.2 OF 005 
 
 
million from MCC for the USD 115 million total project intended 
to provide water for residential and industrial use in the 
greater Maseru area.   Metolong is a fast-track project; 
according to the Minister; ground-breaking could occur in June 
of July of 2005, if funding is available soon.  (Note: an 
environmental impact assessment, however, remains to be done.) 
 
----------------------------------- 
LHDA Director Potloane 
----------------------------------- 
 
¶10. The MCC team met with Potloane to see what lessons learned 
from the Lesotho Highlands Water Project might apply to the 
water projects proposed in the Compact.  (Note: the LHWP 
currently consists of two dams in central Lesotho which supply 
water to South Africa, generating between USD 2 to 2.5 million 
per month in revenue, at current rates, and generating all of 
the electricity requirements for the national grid.  Proposed 
additional dams are underoing feasibility studies.)   Potloane 
felt that the management and engineering skills developed among 
Basotho during the design and construction of LHWP would be used 
on the lowlands projects in the Compact.   While he praised the 
overall proposal, Potloane stated several areas needed further 
attention: a suitable organizational structure for water 
distribution; improved water resource management legislation; 
and careful selection of funding sources (South Africa covered 
90 per cent of the cost of the LHWP). 
 
--------------- 
Site Visits 
--------------- 
 
¶11.  The team visited Lesotho Flour Mills, 50 per cent owned by 
U.S. company Seaboard Corporation and the only significant U.S. 
investment in Lesotho, as well as Global Garments and Formosa 
Textiles, two Taiwan-owned AGOA-based enterprises.  At the flour 
mill, Acting Managing Director Daniel Awani (who previously 
managed some Seaboard operations in West Africa) described the 
business environment in Lesotho, both in general and 
sector-specific terms.  Some of the problems he cited result 
from Lesotho's situation as a landlocked country within a 
country with a stronger economy.  For example, the mill imports 
90 per cent of its raw materials by rail through South Africa. 
Although the company is situated within easy reach of the grain 
producing area of South Africa, the rail system in South Africa 
is not reticulated in a manner that allows the mill to take 
advantage of proximity to surrounding farms.  He said such 
difficulties could be resolved through the rationalization of 
transport routes by the Lesotho and South African governments. 
Processing procedures at the South Africa - Lesotho border are 
slow and should be streamlined. 
 
¶12.  Regarding labor, the mill is able to attract good quality 
workers in Lesotho, but faces stiff competition from South 
Africa, which offers much higher salaries. The laws governing 
employment in Lesotho tend to be overprotective towards workers, 
leading to protracted litigation which impacts on swift 
disciplinary action by employers.  Lesotho banks operate against 
lending ceilings that are below the requirements of large 
operators like the mill.  The government bureaucracy governing 
licenses, work permits etc. tends to be slow, but the mill has 
not detected any corruption in its dealings with the 
authorities.  Similarly, the company felt that the court systems 
operates in a transparent and fair manner. 
 
¶13. Global Garments is one of three factories owned by Nien 
Hsing, a Taiwan-based investor.  It manufactures denim garments 
for export to major United States retailers such as the GAP, 
including Old Navy, and Walmart.  Global has been operating for 
the past eighteen months, and employs 2,500 workers. The company 
currently imports fabric from the Far East, but will start using 
cloth from Formosa Textiles, a sister fabric mill based in 
Maseru.  Nien Hsing operations in Lesotho employ a total of 
9,000 workers including those at Formosa as well as another 
production site.  Factory management felt the government has 
generally been helpful in meeting it needs, e.g., 
infrastructure, water supply, etc., although the electrical 
supply is unstable at times.   Formosa is operating at 
significantly below capacity, due, its owners claim, to the 
extension of the AGOA third country fabric provision which 
allows clothing makers to continue importation of inexpensive 
fabric from Asia. 
 
¶14. The proposed site for the Metolong dam lies about 35 
kilometers east of Maseru.  Representatives of the Ministry of 
Natural Resources and the Water and Sewage Authority who 
accompanied the team stressed the minimal disruption of the 
project to the surrounding area.  No villages would need to be 
relocated and the water level would not flood existing fields. 
When filled, the dam would meet the anticipated needs of the 
Maseru area and still have ample spare capacity. 
 
--------------------------------------------- --------------- 
Lunch with Cabinet MCA Sub-Committee 
 
MASERU 00000598  004.2 OF 005 
 
 
--------------------------------------------- --------------- 
 
¶15.  At a lunch hosted by the Ambassador, MFA Tsekoa 
acknowledged the need to delineate priorities and phases in 
Lesotho's proposal.  CEO Applegarth commended Lesotho's culture 
of openness and transparency described by various 
persons/organizations the team had already met.  He encouraged 
consideration of an expanded resource model in Lesotho to 
include highland water, Basotho people, the NGO community, 
private sector, and donor organizations.  Minister of Finance 
Thahane expressed concern about the withdrawal of training by 
cooperative partners in the U.S. over the past 10 years.  He 
underlined the ambiguity of the term "capacity building" and 
called for integration of specific skills development into the 
proposal.  Despite admitted frustration at "talent poaching" by 
South Africa, Ministers Phororo (Agriculture) and Mololeki 
(Natural Resources) suggested resurrecting agro-economic, 
management, and financial exchange opportunities such as the 
former programs with Washington State University and the state 
of Colorado.  The ministers also illuminated for the MCC team 
the nuanced displacement of highland for lowland Basotho values, 
or a cattle-as-collateral to cattle-as-commodity shift amidst 
increased stock theft and land use disputes.  There remains some 
sentiment for eventual development of tourist sites as noted by 
Minister Nts'inyi who also commented on the recent international 
tourism conference she attended in Washington, D.C. The 
Government of Lesotho as a whole is eager for feedback on a 
proposed Compact and for the next MCC team visit. 
 
 
 
--------------------------------------------- --------- 
Meeting with Donors and Press Event 
--------------------------------------------- --------- 
 
¶16.  At the meeting with approximately 20 representatives of the 
donor community, Applegarth outlined the basics of Lesotho's 
proposed Compact.  (Knowledge of the proposal among the donors 
varied considerably.)   He stressed that MCA is an addition to 
the other donor initiatives.  MCC would be happy to collaborate 
with other donors in worthwhile projects planned or underway. 
He added that the consultative process seemes to have been valid 
and genuine.  Donors commented that the consultations required 
by MCA had significantly improved intra-governmental 
communication and the GOL's outreach to other sectors.  One of 
the most experienced diplomatic representatives added that the 
current environment is the best ever for getting a return on 
one's investment in development.  This event, held at the 
Embassy, was followed by a press conference covered by national 
television and print media including the country's leading news 
magazine. 
 
---------------------------------------- 
Meeting with Prime Minister 
---------------------------------------- 
 
¶17.  PM Mosisili praised the MCA as holding out great potential 
for Lesotho.  MCA is one of numerous USG initiatives (e.g., 
AGOA)  that engage and involve the beneficiary country and, in 
the process, gain the support of the general population. 
Lesotho's progress in democratization has opened up society, he 
added; the successful 2002 elections brought a peaceful 
post-election period for the first time in the country's 
history.  This provides an opportunity to tackle development 
issues.   In that regard, the Compact's priority on building the 
water sector is appropriate.  The LHWP is a good example of how 
the country can benefit from exploiting its water resources. 
Mosisili agreed with Applegarth's suggestion about the need for 
all parties involved in the Compact to consider implementation 
options, refine indicators of success, and continue to work on 
policy developmenmt.  He volunteered that the time required to 
start a business in Lesotho (an indicator where Lesotho ranks 
below the median among MCA eligible countries) must be reduced. 
 Regardless of these issues, the Prime Minister concluded, 
Lesotho would continue to provide its people and investors 
honest government and respect for human rights.  During the 
GOL's Oct 26 reception, the finance Minister reiterated 
Lesotho's gratitude for the visit and the opportunity to 
exchange views with the team. 
 
 
¶18. COMMENT:  Although the team's actual time in Lesotho 
amounted to little more than 36 hours, the visit accomplished 
its objectives.   The wide range of meeting and other activities 
familiarized CEO Applegarth and his colleagues with the 
potential partners in an MCC Compact and with the general 
political and economic environment.   From the perspective of 
the partners, the familiarization was reciprocal.  Meeting top 
level MCC officials provided a greater understanding of the 
organization's focus and direction, as well as the general 
Compact evaluation process.  The hosts would have appreciated 
more feedback on the proposed Compact, which was not possible at 
this time.  Their eagerness for MCC's reaction and receptivity 
to Applegarth's suggestions for work to be done in the interim 
 
MASERU 00000598  005.2 OF 005 
 
 
underscored the commitment of Lesotho to the MCA process.  We 
believe the GOL would work closely with any future MCA technical 
teams to refine proposed projects and would insure continued 
dialogue with the multiple constituencies engaged to date. 
 
 
 
 
 
 
 
 
 
PERRY